Interest Rate News, Loan Information, Refinance
Combined Loan-to-Value Requirements for Refinance Transactions
August 19, 2010 by Jeff Thomas · Leave a Comment
Fairfax-VA. The ML 2010-24 is guidance for Combined Loan To Value (CLTV) refinance transactions – only. The new policy and guidelines are more restrictive than the old FHA policies guidelines. In the past FHA policies did not have a restriction on minimum equity limits (LTV and CLTV in loan talk), but Wall Street and the big banks added their own restrictions that allowed an FHA loan to be underwater by only 25% of the appraised value. Essentially in the past, FHA didn’t care how far underwater a borrower was, the loan request was able to be approved if the loan circumstances met FHA guidelines. But the companies that funded FHA loans do care how much equity a homeowner has. In the end, investors (Wall Street and the big banks) did and do care how far a homeowner is underwater so they set the max at 125% of the home’s value as the limit. Just as in the past, he who has the gold sets the rules. Wall Street and the big banks have the money and clout, so they set the rules to try and limit their exposure to potentially bad loans which could result in large losses.
An explanation of three different FHA programs is below:
Homeowners are now restricted to a 97.75% LTV (2.25% remaining equity) on rate and term refinance, 85% LTV (15% remaining equity) on cash out refinance and 125% CLTV (underwater by 25%, so ZERO equity) for an FHA streamline refinance. The refinance for borrowers in negative equity positions (underwater) is only available if the current servicer is willing to give up 10% of the current loan balance and that loan must not be a FHA insured plus many other restrictions. The LTV limit is 97.75% and the CLTV limit is 115%, you should not get excited about this product since it will be more difficult than getting a short sale approved. This is based on the ML2010-24: Combined Loan-to-Value Requirements for Refinance Transactions (8/6/10).
| Maximum CLTV for Refinance Transactions | |
| Rate and Term (or No Cash Out) Refinances | 97.75% |
| Refinances for Borrowers in Negative Equity Positions* | 115% |
| FHA-to-FHA Streamline Refinances With or Without Appraisals | 125% |
| Cash-out Refinances | 85% |
